Tough Economic Times Put Pressure On African Bank’s Customers

African Bank

VENTURES AFRICA – Trading conditions in both the unsecured lending and furniture industry remained challenging during the first quarter ended December last year, African Bank Investment Limited (ABIL), said on Wednesday. South Africa’s biggest provider of unsecured lending said the economy faced some tough challenges as a result of both global and local dynamics.

It said this, together with the growth in the supply of credit over the past few years, would continue to exert pressure on its customers.“Accordingly, ABIL will remain cautious and vigilant,” it said in a statement.

“ABIL will continue to proactively manage risk and return through this period as part of its philosophy of building a sustainable business that positively impacts on people’s lives through all cycles.”

The market liked the fact that the company was doing something about risk. This became evident with the share price movement. The company’s share price gained 1.34 percent on the JSE in early trade from 31.38 rands (about $4) to 31.80 rands.

The group said it also continued to work closely with stakeholders including government and regulators, to ensure that the credit industry plays its rightful role in society and to support economic growth.

Apart from these trading conditions, the group achieved good advances growth and satisfactory performances in the other business drivers in the quarter ended 31 December 2012. Retail sales slowed in the wake of a drop in consumer confidence, continuing deflation in furniture and durable goods and subsiding growth in unsecured lending.”

The bank said total credit disbursements for the quarter was flat relative to the first quarter of the 2012 financial year, at 7.43 billion rands ($821 million) (Q1 2012: R7.45 billion), mainly as a result of risk reduction measures and further refinements to ABIL’s customer segmentation in this period. It said these changes resulted in average loan size declining from R12 650 for the 2012 financial year to R11 444 in December and loan term reducing from an average of 48 months to 46 months.

It added that this was also apparent that there is a slowdown in customers’ appetite and capacity (through reduced affordability) for credit, with the number of credit applications decreasing by 7 percent over this period.

Gross advances increased by 8 percent to 57.3 billion rands ($6.3 billion) from 53 billion rands ($6 billion) in September 2012, aided by new disbursements as well as credit card utilisation of 509 million rands ($56.2 million).

“The Banking unit will continue to target sales and advances growth by constantly calibrating its risk appetite and underwriting models to match the trading environment,” it said.

“The furniture retail sector is unlikely to grow this year, as consumers decrease spending on durables. EHL has implemented strategies to optimise returns through cost reductions and margin management and to maximise and optimise financial services value extraction from the Retail unit.”